The Social Security Insolvency Issue – A Blessing or Curse?

Think how relieved you would feel after your doctor said, “I’ve got some bad news for you.  You’re healthy now, but you will die one day.”  You’d likely be relieved he didn’t give you six to nine months to live.  And so it is with Social Security’s Old-Age and Survivors Insurance (OASI) Trust Fund (the “pension” part) which is projected to become depleted in 2034 or 2035.  Only 77 percent of benefits will be payable at that time.  Like our patient, it’s healthy today, but it is facing a dire situation each year starting with 2020 until insolvency hits in just over a decade.

The blessing is for today’s political leaders, including The Trump Administration, and all of the Democrat candidates for president in 2020.  None utters a word about Social Security reform.  After all, why touch something that in their minds isn’t broken or unhealthy right now?

But Social Security is broken now.  The program will run a deficit every year from 2020 until 2034.  It will need to rely on past surpluses (reserves) to pay full promised benefits for the next 14 years.  It’s akin to an individual draining his savings account to zero over that time period to pay for daily costs like rent, food and electricity.

The curse is for future political leaders.  Because of the inaction of today, they will be faced with even tougher decisions if the current crop waits ten years to reform Social Security.  In ten years, the tax increases necessary would likely prove too unpalatable for voters of working age.  Similarly, seniors would rebel if their benefits were drastically cut.  But one or both must occur.  The program needs revenue.  Social Security, by law, can only pay out to beneficiaries that which comes in via payroll taxes.

The “how did we get here” has been written about endlessly since the last major Social Security reform in 1983.  It’s demographics.  One, people are living much longer than when the program began in 1935.  There has only ever been one change to the retirement age, and by a mere two years, in those 84 years.  Two, families are having fewer children.  The workforce making payroll tax contributions simply cannot keep up with benefits promised under current law.

So, what do we do?  Simply put, the law must be changed to reflect reality and longevity.  There are many proposals in Congress, but most get little attention.  Some would exacerbate the situation, including a bill to eliminate the Windfall Elimination Provision and Government Pension offset; another augments payments to lower income people; still others reduce or eliminate income tax on benefits.  All have their constituencies and even some merit, but only as part of comprehensive reform to increase the longevity of the Trust Fund should those proposals even be entertained.

The Association of Mature American Citizens (AMAC) has a reform plan to preserve and modernize Social Security by making modest changes in cost of living adjustments and the retirement age, without additional tax increases on workers.  AMAC advocates for a bipartisan compromise, “The Social Security Guarantee Act,” taking selected portions of bills introduced by former Rep. Johnson (R-TX) and Rep. Larson (D-CT) and merging them with the Association’s own well researched ideas.  One component is Social Security PLUS, a new yet voluntary early retirement plan that would allow all earners to have more income available at retirement.  This component is intended to appeal especially to younger workers.  AMAC is resolute in its mission that Social Security be preserved and modernized and has gotten the attention of lawmakers in Washington DC, meeting with a great many congressional offices and their legislative staffs over the past several years.  Read AMAC’s plan here.

Jeff Szymanski works in political communications for the Association of Mature American Citizens (AMAC), a senior benefits organization with over 2 million members.  He is a frequent contributor here and of articles to draw attention to Social Security’s ailing financial health.

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